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Finding value-for-money stocks with Skaffold

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Top dividend stocks(that can afford to pay you)High yielding stocks are desirable, especially in an environment of low interest rates. For some investors it’s easy to get captivated by the promised yield that is supplementing their income, meanwhile ignoring the poor and worsening economics of the business. Some of Australia’s largest companies – Telstra, Alumina, Sydney Airport Holdings, Amcor – pay a dividend equal to or higher than their earnings per share. Sooner or later they will have to reduce the dividend unless they can increase earnings. Think about it this way. You have $10,000 cash in the bank, earn $5,000 a month and spend $6,000. After 10 months your $10,000 would be depleted. You’d need to curve your spending, pull out the credit card, or raise funds some other way to sustain your spending habits.Businesses that you rely on to supplement your income are no different. If dividends are consistently higher than earnings, after a while, something will have to give. Last financial year Transurban reported Net Profit After Taxes of $55m, yet paid out more than 6 times that in dividends - $337 million to be exact. To pay that dividend, the company increased their debt by

more than $200 million. TCL’s net debt/equity ratio, which measures the financial leverage of a company, now sits at 120%. In the absence of surging earnings, TCL will need to take on even more debt, raise capital from its shareholders, or cut the dividend. The argument that just cash flow, not accounting profits, matters for infrastructure stocks only holds up if operating cash flow is sufficient and growing. TCL consistently fails to generate sufficient cash flow to cover its investing activities and dividends, resulting in a funding gap that has to be covered from somewhere. The business can either increase its risk (borrow more), dilute its shareholders (raise equity) or scale back the dividend. The yield will only be sustainable if earnings grow.If its dividends you seek, you must research the business that’s offering you income and make sure it can actually afford to pay a dividend. Find out how much cash the business has generated from its operations and subtract any investments made, dividends paid and other cash flows. What’s left? If there’s a gap, you’ve got a problem. With the goal of finding top quality businesses that can actually afford to pay a dividend, we logged into Skaffold and ran a filter for the very best companies. They’re rated A1, A2, B1 and B2. The universe was quickly reduced to 181. Of those, Skaffold sources consensus analyst forecasts for 126.

Top dividend stocks

Finding value-for-money stocks with Skaffold

INVESTMENT. SIMPLIFIED.Top dividend

stocks

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Next we narrowed the list to those that, at their last reporting date, produced a return on their equity of more than 25% and had a net debt / equity ratio less than 40%. That left 50 stocks.

Companies that missed out because of their high debt ratio include Woolworths, Seek, JB Hi-Fi, Coca-Cola Amatil, Aristocrat and Telstra.

Of the 50 stocks, 19 are forecast to yield at least 5% over the next 12 months. They are listed in the table to the left. Don’t just jump in and buy the stocks forecast to offer the highest yield. Take the time to understand the business, estimate its underlying value and research its future growth opportunities. Are earnings forecast to rise and are those forecasts sustainable? Does the business operate in an environment that’s not susceptible to falling commodity prices or a worsening retail environment? And don’t pay too much for shares, even if the yield is attractive. If today’s share price is significantly higher than the underlying value of the business, your future dividends may be depleted by a falling share price. The data contained in this report is accurate as at close of trade on Friday 23 November 2012.

About SkaffoldSkaffold is a state-of-the-art online stock-research application that interprets key historical financials and broker forecasts into image-rich visuals. Every stock is rated, from A1 to C5, and up to three years of future valuations is also available. It’s entirely automated and updated daily using information sourced from top-tier financial institutions.Skaffold was designed to save time on research and simplify share market investing. Skaffold is invaluable for all types of investors, individual DIY investors, Self Managed Super Funds (SMSF’s) as well as professional investors and advisers.

Company Name ASX Code Skaffold Score Forecast Yield Franking

NWH Holdings Limited NWH A1 11.0% 100%

GR Engineering Services Ltd GNG A1 9.0% 100%

Lycopodium Limited LYL A1 8.2% 100%

DWS Ltd DWS A1 8.1% 100%

OrotonGroup Limited ORL A1 7.9% 100%

IMF (Australia) Limited IMF A1 6.8% 100%

Monadelphous Group Limited MND A1 6.8% 100%

Grange Resources Limited GRR A1 6.4% 0%

Data#3 Limited DTL B1 6.3% 100%

Mineral Resources MIN A2 6.1% 100%

Norfolk Group Ltd NFK B2 6.1% 0%

Mastermyne Group Limited MYE A1 6.0% 100%

Iluka Resources Limited ILU A1 5.9% 100%

Nick Scali Limited NCK A2 5.7% 100%

SMS Management & Technology Limited SMX A2 5.7% 100%

Thorn Group Ltd TGA A2 5.7% 30%

Platinum Asset Management Limited PTM A2 5.6% 100%

Wotif.com Holdings Limited WTF A1 5.4% 100%

Kingrose Mining Limited KRM A1 5.2% 0%



IMF (Australia) Ltd (IMF) is a litigation funder. The company is engaged in investigation, management and funding litigation. IMF provides funding for litigation and investigations preliminary to litigation; payment of adverse costs orders; strategic planning, monitoring and managing of litigation; factual investigation including asset tracing, and assistance in facilitating settlements and maximising the value of each claim.

Sector FinancialIndustry Group Misc. Financial ServicesMarket Capitalisation $195.029mSkaffold Score A1

IMF’s Dividends Per Share have increased 27.2% per annum, from $0.03 to $0.10 since 2003. IMF is forecast to pay $0.11 in dividends in 2013, a forecast yield of 6.8%.

Dividends Per Share

2010 2011 2012 2013 2014 2015$0.05 $0.15 $0.10 $0.11 $0.10 $0.16

Forecast

IMF’s Earnings Per Share have increased 11.6% per annum, from $0.13 to $0.35 since 2003. Skaffold forecasts IMF’s earnings will decline 46.2% over the next twelve months.

Earnings Per Share

2010 2011 2012 2013 2014 2015$0.10 $0.19 $0.35 $0.19 $0.16 $0.22

Forecast

Since 2003 IMF has generated $24.600m in cash flow from operations, received a further $20.133m, paid dividends of $52.212m and paid out other financing cash flows and foreign exchange effects of $0.360m. The total of these business activities, when compared to cash flow, produces a Funding Gap (green line) of $7.838m. A Funding Gap indicates IMF currently relies on external sources of capital to fund its business activities.

Cash Flow

2010 2011 2012Gap Gap Surplus

DividendsNPATCash Flow

Since 2003 IMF’s profits (NPAT) have increased by 19.4% p.a, from $8.690m to $43.005m. To generate this $34.315m increase in profit, shareholders have put in equity of $18.923m and left in earnings of $72.363m. IMF has increased its debt from $2.449m to $34.945m. Return on Equity (ROE) is the best measure of business performance, and IMF has averaged 21.1% since 2003. Recently, IMF generated a Return on Equity of 43.2%.

Debt & Profitability

2010 2011 201217.2% 28.5% 43.2%

NPATDebtROEEquity

Skaffold Score

Quality Score Performance Score

2010 2011 2012 2010 2011 2012A A A 3 1 1

Skaffold Verdict

Quality Performance Value Prospects Safety Margin

A 1 11.0% 5.5% 17%

IMF is currently rated A

(compelling) for quality.

IMF is currently rated 1 (excellent)

for business performance.

IMF’s intrinsic value is forecast to increase 5.5% p.a. from

$1.89 to $2.11 over the next two years.

IMF’s Market Price of $1.58 offers a 17% Safety

Margin (discount) to its intrinsic value of $1.89.

IMF (Australia) Limited (IMF)

Skaffold Line

2009 2010 2011 2012 2013 2014 2015

$6.75

$3.38

$0.00

Forecast period

23-11-2012Market Price: $ 1.58Intrinsic Value: $ 1.89



Lycopodium Limited (LYL) is engaged in engineering consulting in mining, metallurgical and manufacturing industries. The company’s Corporate Services segment consists of managerial and legal services provided to the group in addition to strategic investment holdings; Minerals consists of engineering and related services; Project Services Africa provides services to the extractive mining industry in Africa.

Sector ServicesIndustry Group Business ServicesMarket Capitalisation $211.215mSkaffold Score A1

LYL’s Dividends Per Share have declined -2.4% per annum, from $0.40 to $0.33 since 2004. LYL is forecast to pay $0.45 in dividends in 2013, a forecast yield of 8.2%.

Dividends Per Share

2010 2011 2012 2013 2014 2015$0.27 $0.30 $0.33 $0.45 $0.43 $0.46

Forecast

LYL’s Earnings Per Share have increased 17.2% per annum, from $0.14 to $0.57 since 2003. Skaffold forecasts LYL’s earnings will increase 5.4% over the next twelve months.

Earnings Per Share

2010 2011 2012 2013 2014 2015$0.42 $0.45 $0.57 $0.60 $0.62 $0.66

Forecast

Since 2003 LYL has generated $104.876m in cash flow from operations, invested $5.595m, paid dividends of $69.263m and paid out other financing cash flows and foreign exchange effects of $1.854m. The total of these business activities, when compared to cash flow, produces a Funding Surplus (green line) of $28.164m. A Funding Surplus indicates LYL does not currently rely on external sources of capital to fund its business activities.

Cash Flow

2010 2011 2012Gap Surplus Surplus

DividendsNPAT Cash Flow

Since 2003 LYL’s profits (NPAT) have increased by 37.5% p.a, from $1.257m to $22.144m. To generate this $20.887m increase in profit, shareholders have put in equity of $10.910m and left in earnings of $40.111m. LYL has increased its debt from $1.910m to $3.158m. Return on Equity (ROE) is the best measure of business performance, and LYL has averaged 30.3% since 2003. Recently, LYL generated a Return on Equity of 40.5%.


2010 2011 201238.0% 37.0% 40.5%

NPATDebt ROEEquity

Skaffold Score


2010 2011 2012 2010 2011 2012A A A 1 1 1

Skaffold Verdict


A 1 10.3% 11.5% 29%

LYL is currently rated A


LYL is currently rated 1 (excellent)


LYL’s intrinsic value is forecast to increase 3.4% p.a. from


LYL’s Market Price of $5.45 offers a 29% Safety


Lycopodium Limited (LYL)

Skaffold Line

2009 2010 2011 2012 2013 2014 2015

$9.75

$4.88

$0.00


Forecast period



Mastermyne Group (MYE) is a provider of underground coal mining services in Australia. The company provides services in the coalfields of Queensland’s Bowen Basin and New South Wales. MYE operates three segments: Underground Mining Services; Electrical and Mechanical Services; and Engineering and Fabrication designs.

Sector EnergyIndustry Group CoalMarket Capitalisation $124.356mSkaffold Score A1

MYE’s Dividends Per Share have declined -0.3% per annum, from $0.08 to $0.08 since 2009. MYE is forecast to pay $0.10 in dividends in 2013, a forecast yield of 6.0%.

Dividends Per Share

2010 2011 2012 2013 2014 2015$0.01 $0.06 $0.08 $0.10 $0.11 $0.13

Forecast

MYE’s Earnings Per Share have increased 13.0% per annum, from $0.14 to $0.20 since 2009. Skaffold forecasts MYE’s earnings will increase 32.3% over the next twelve months.

Earnings Per Share

2010 2011 2012 2013 2014 2015$0.10 $0.20 $0.20 $0.26 $0.29 $0.32

Forecast

Since 2009 MYE has generated $59.220m in cash flow from operations, invested $11.215m, paid dividends of $8.401m and paid out other financing cash flows and foreign exchange effects of $13.496m. The total of these business activities, when compared to cash flow, produces a Funding Surplus (green line) of $26.108m. A Funding Surplus indicates MYE does not currently rely on external sources of capital to fund its business activities.

Cash Flow

2010 2011 2012Gap Surplus Surplus

DividendsNPAT

Cash Flow

Since 2009 MYE’s profits (NPAT) have increased by 32.3% p.a, from $6.349m to $14.687m. To generate this $8.338m increase in profit, shareholders have put in equity of $41.278m and retained earnings have declined by $3.129. MYE has increased its debt from $15.363m to $24.442m. Return on Equity (ROE) is the best measure of business performance, and MYE has averaged 28.5% since 2009. Recently, MYE generated a Return on Equity of 30.0%.


2010 2011 201220.2% 38.0% 29.9%

EquityNPATDebt

ROE

Skaffold Score


2010 2011 2012 2010 2011 2012B B A 2 1 1

Skaffold Verdict


A 1 -16.2% 4.2% 35%

MYE is currently rated A (compelling) for

quality.

MYE is currently rated 1 (excellent)


MYE’s intrinsic value is forecast to increase 4.2% p.a. from


MYE’s Market Price of $1.65 offers a 35% Safety


Mastermyne Group Limited

(MYE)

Skaffold Line

2011 2012 2013 2014 2015

$3.00

$1.50

$0.00

Forecast period




Mineral Resources (MIN) is an integrated supplier of goods and services to the resources sector. The company has operations in build, own and operate crushing, screening, processing and materials handling, general mine infrastructure, bulk iron ore and manganese commodities production and export and polyethylene pipeline fabrication, pipe lining, pipe fittings manufacture and pipeline installation.

Sector Basic MaterialsIndustry Group Metal MiningMarket Capitalisation $1,491.93mSkaffold Score A2

MIN’s Dividends Per Share have increased 37.1% per annum, from $0.10 to $0.46 since 2006. MIN is forecast to pay $0.49 in dividends in 2013, a forecast yield of 6.1%.

Dividends Per Share

2010 2011 2012 2013 2014 2015$0.20 $0.42 $0.46 $0.49 $0.58 $0.61

Forecast

MIN’s Earnings Per Share have increased 595.5% per annum, from $0.00 to $1.13 since 2006. Skaffold forecasts MIN’s earnings will decline -13.7% over the next twelve months.

Earnings Per Share

2010 2011 2012 2013 2014 2015$0.66 $0.96 $1.13 $0.98 $1.15 $1.22

Forecast

Since 2006 MIN has generated $683.456m in cash flow from operations, invested $621.414m, paid dividends of $191.770m and paid out other financing cash flows and foreign exchange effects of $4.092m. The total of these business activities, when compared to cash flow, produces a Funding Gap (green line) of $133.820m. A Funding Gap indicates MIN does currently rely on external sources of capital to fund its business activities.

Cash Flow

2010 2011 2012Surplus Gap Gap

DividendsNPAT

Cash Flow

Since 2006 MIN’s profits (NPAT) have increased by 669.3% p.a, from $0.001m to $207.260m. To generate this $207.259m increase in profit, shareholders have put in equity of $441.007m and left in earnings of $405.109m. MIN has increased its debt from $37.272m to $187.075m. Return on Equity (ROE) is the best measure of business performance, and MIN has averaged 29.7% since 2006. Recently, MIN generated a Return on Equity of 26.9%.


2010 2011 201232.7% 29.7% 26.9%

NPATDebt

ROEEquity

Skaffold Score


2010 2011 2012 2010 2011 2012A A A 1 1 2

Skaffold Verdict


A 2 44.8% 12.2% 2%

MIN is currently rated A


MIN is currently rated 2 (good) for business performance.

MIN’s intrinsic value is forecast to increase 12.2% p.a. from


MIN’s Market Price of $8.05 offers a 2% Safety Margin (discount) to its intrinsic value of $8.19.

Mineral Resources

Limited (MIN)

Skaffold Line

2009 2010 2011 2012 2013 2014 2015

$20.00

$10.00

$0.00

Forecast period




Monadelphous Group (MND) is a diversified services company operating in the resources, energy and infrastructure industry sectors. The Company operates in three divisions: Engineering construction (includes electrical and instrumentation services), maintenance and industrial services and infrastructure (includes aviation support services).

Sector Capital GoodsIndustry Group Construction ServicesMarket Capitalisation $1,932.95mSkaffold Score A1

MND’s Dividends Per Share have increased 39.5% per annum, from $0.06 to $1.25 since 2003. MND is forecast to pay $1.44 in dividends in 2013, a forecast yield of 6.8%.

Dividends Per Share

2010 2011 2012 2013 2014 2015$0.83 $0.95 $1.25 $1.44 $1.54 $1.44

Forecast

MND’s Earnings Per Share have increased 36.8% per annum, from $0.09 to $1.55 since 2003. Skaffold forecasts MND’s earnings will increase 7.4% over the next twelve months.

Earnings Per Share

2010 2011 2012 2013 2014 2015$0.96 $1.09 $1.55 $1.66 $1.77 $1.78

Forecast

Since 2003 MND has generated $772.919m in cash flow from operations, invested $84.572m, paid dividends of $433.651m and paid out other financing cash flows and foreign exchange effects of $7.720m. The total of these business activities, when compared to cash flow, produces a Funding Surplus (green line) of $246.976m. A Funding Surplus indicates MND does not currently rely on external sources of capital to fund its business activities.

Cash Flow

2010 2011 2012Surplus Surplus Surplus

DividendsNPAT

Cash Flow

Since 2003 MND’s profits (NPAT) have increased by 39.5% p.a, from $6.822m to $136.687m. To generate this $129.865m increase in profit, shareholders have put in equity of $41.649m and left in earnings of $170.103m. MND has increased its debt from $7.337m to $50.621m. Return on Equity (ROE) is the best measure of business performance, and MND has averaged 52.6% since 2003. Recently, MND generated a Return on Equity of 62.1%.


2010 2011 201262.2% 56.4% 62.1%

Debt Equity NPATROE

Skaffold Score


2010 2011 2012 2010 2011 2012A A A 1 1 1

Skaffold Verdict


A 1 42.3% 3.8% 18%

MND is currently rated A (compelling) for

quality.

MND is currently rated 1 (excellent)


MND’s intrinsic value is forecast to increase 3.8% p.a. from $25.96 to $27.96 over the

next two years.

MND’s Market Price of $21.32 offers a 18%

Safety Margin (discount) to its intrinsic value of $25.96.

Monadelphous Group Limited

(MND)

Skaffold Line

2009 2010 2011 2012 2013 2014 2015

$40.00

$20.00

$0.00


Forecast period



About SkaffoldSkaffold is a state-of-the-art online stock research application. It interprets key financials and forecasts into image-rich visuals. The application is automated and updated daily using information sourced from top-tier financial institutions. Skaffold was designed to save time on research and simplify share market investing. With Skaffold you can now quickly find the best opportunities, discover quality companies and manage your share portfolio confidently.

Data accurate as at 23 November 2012.Important Information: Nothing in this article constitutes advice. The content of this publication contains general financial information that has been prepared without taking into account your personal financial circumstances. Before acting upon any of the information provided in this publication, you should always consider its appropriateness in light of your objectives, financial situation and needs and seek professional financial advice. Skaffold Pty Limited (Skaffold) is a Corporate Authorised Representative of Montgomery Investment Management Pty Limited ABN 73 139 171 701 (AFS Licence No: 354564). Skaffold is a registered trademark of Skaffold Pty Limited. Patents Pending. Copyright © Skaffold Pty Limited ABN 43 142 851 116.

View up to ten years of historic Earnings and Dividends Per Share and where available, three years of forecasts. Instantly see if a company’s earnings and dividends have been rising, and if growth is forecast over the next few years.

Earnings & Dividends

2010 2011 2012 2013 2014 2015$0.12 $0.12 $0.16 $0.19 $0.24 $0.28

Forecast

The Skaffold Score rates the quality and performance of every company. It rates a company’s consistency of earnings, debt levels and the quality of cash flow, from A1 to C5. Instantly see if a company meets your criteria and is worth further investigation.

Capital History displays a company’s relationship with its owners and lenders to help you understand its history of equity, debt and performance. Are profits rising? Are you comfortable with the level of debt? What about return on equity? A table provides even more granular information.

Capital History

2009 2010 201110.94% 21.06% 37.15%

Equity NPATDebtROE

www.skaffold.com [email protected] 1300 SKAFFOLD

Skaffold’s Funding Surplus / (Gap), the green line, reveals how the cash generated has been utilised and whether the company has required external funding to finance its activities. Skaffold makes it easy to evaluate these vital aspects of a company’s performance.

Cash Flow

2009 2010 2011Surplus Gap Surplus

DividendsNPAT Cash Flow

Skaffold Score

2010 2011 2012C5 B3 A1

A key component in evaluating a company and deciding when to purchase it is to estimate its intrinsic value. Every Skaffold Line chart, for every ASX-listed company, displays up to three years of future valuations and ten years of historical valuations so you can identify historically good-performing companies forecast to offer future growth.

Forecast

Skaffold Line

2012 2013 2014

30-04-2012Market Price: $ 2.02Actual Intrinsic Value: $ 2.28Average Intrinsic Value: $ 1.70

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